Zloty Claws Back Most Of Yesterday's Losses

The combination of greenback strength and cautious market mood took its toll on the zloty yesterday, inspiring decent correction in EUR/PLN, which came after the pair's recent steep losses. Buying pressure has dissipated this morning, with the rate unwinding most of yesterday's gains.

• When this is being typed, EUR/PLN trades at 4.4542, 234 pips below neutral levels. Bears see Jun 22 low of 4.4195 as their initial target and a break here would open up the 4.4 figure. Bulls look for gains past the 50-EMA, which intersects at 4.5109.
• In their morning note, Santander take a positive view on the zloty. They suggest that any deeper PLN depreciation could intensify FX conversion activity by state development fund BGK. In addition, they do not expect NBP rate cuts this year and any upward corrections to market rates could eventually support the zloty.
• On that note, NBP's Gabriela Maslowska (relatively dovish policymaker) said that rate cuts could become possible in 4Q2023, but it is too early to discuss them now. Any such decision will depend on incoming data. In order to lower rates, the MPC would need to be sure that inflation is easing sustainably towards the target.
• POLGBs have reversed their initial losses and last trade 1.0-2.0bp richer across the curve.